IRS Raising Annual Gift Tax and Estate Tax Exclusions in 2023

Although inflation is generally nothing to be pleased about, the IRS recently announced inflation-adjusted changes to the gift tax annual and estate tax exclusions for 2023.

If you are considering wealth transfer tax planning, these are welcome increases.

Gift Tax Annual Exclusion

Effective January 1, 2023, the gift tax annual exclusion will increase from $16,000 (2022 number) to $17,000 per recipient. This means you can gift this amount to as many people as you wish in 2023 without using up your lifetime gift and estate tax exemption or paying gift tax. Married couples who gift-split may gift a combined $34,000 per person in 2023 without making a taxable gift.

Combined Gift and Estate Tax Exemption

Another significant change, effective January 1, 2023, is the combined gift and estate tax exclusion increase. It is currently $12.06 million, increasing to $12.92 million ($25.84 million for a married couple). The combined gift and estate tax exemption is the total amount of gifts a person may make during their lifetime, including transfers made at death, before being on the hook for gift or estate tax.

Those who have used up their lifetime exclusions as of December 31, 2022, will now be able to gift another $860,000 tax-free starting January 1, 2023. Married couples in this situation may make additional gifts of $1.72 million.

Generation-Skipping Transfer Tax Exemption

Another significant inflation-related change to be aware of: the generation-skipping transfer tax exemption is also going up. It will be $12.92 million, up from $10 million.

This may be useful for an individual who wishes to place assets in a trust for the benefit of future generations. In doing so, they may allocate their generation-skipping transfer tax exemption to this trust. The result is that these assets can remain in the trust for multiple generations without any gift, estate, or generation-skipping tax due on distributions or upon the trust’s termination.

Looking Ahead

However, readers should remember that these figures will revert to much lower amounts when the current Tax Cuts and Job Act expires on December 31, 2025, if Congress does not extend it or make it permanent. These exclusions will be reduced by approximately 50 percent to 2017 levels upon expiration, as adjusted for inflation.

There are a variety of planning strategies available to take advantage of these more significant exemption amounts before they are no longer available. If you have questions about how you can benefit from the increased tax exclusions, contact us for an estate planning consultation at (989) 356-6128. Even if you have an estate which is valued at far less than the present or projected level of estate tax exemption, it is still a good time to think about scheduling an estate planning consultation. Many people make it their New Year’s Resolution to get their  documents and affairs in order. You can take care of the first step now by calling and getting an appointment on the calendar for 2023!

According to a recent national study, nearly a quarter of Americans aged 50 and older say they – or a loved one – needed long-term care in 2022. The findings further suggest that seniors and their caregivers could benefit from more consumer-friendly information and guidance about long-term care services, a need researchers say will grow exponentially in the future.

Finding Long-Term Care Causes Wide-Ranging Emotions

Results showed that people looking for long-term care experienced a range of emotional responses in searching for a provider:

  • 53 percent of respondents reported feeling anxious about the process 

  • 52 percent described feeling frustration

  • 23 percent said they were confident during the process of long-term care for themselves or their loved one

  • 23 percent of respondents felt “at peace” about the choice they made for long-term care

  • Only 14 percent of respondents reported feeling happy

Respondents Want to Feel Prepared When Deciding on Long-Term Care

Researchers found that respondents want advice for seeking long-term care when it comes to the following:

  • 92 percent wanted to know what types of long-term care services are available
  • 90 percent wanted more information about paying for long-term care
  • 90 percent said advice and support on long-term care would have been helpful to them
  • 88 percent needed help understanding whether their personal or health care needs require long-term care
  • 88 percent of those surveyed also said they needed help choosing a long-term care provider
  • 86 percent said having someone to listen to them when seeking long-term care services would have been important to them
  • 84 percent of respondents wanted help deciding whether to pursue in-home care or community-based services (i.e., nursing home care)

Paying for Long-Term Care

A large number of respondents reported needing more information about how to pay for long-term care.

Of the people who were surveyed, 63 percent said it was extremely important to have additional details about the various types of care options available. Meanwhile, 69 percent said it was extremely important to have further details about the cost of care and their payment options.

To learn more about long-term care services and options, it is often helpful to work with an elder law attorney in the community who can help you assess the benefits and services available to you and create a plan for how to pay for long-term care. At Wenzel Bennett & Harris, P.C., we offer a consultation called a “Long-Term Care Consultation” in which we meet with clients to help create a plan for long-term care. If the client has a need for care in a nursing home or skilled care at home, we will work with the client and their family to explain how the Medicaid program works , review the clients’ assets and income, and assist the client in obtaining Medicaid benefits, where applicable. Many families are surprised to learn that they may qualify for benefits they weren’t aware were available to them. In addition, we help clients to make sure they have a good plan in place should it become necessary for them to have long-term care in the future. This often includes having Powers of Attorney for both financial and health care needs, so that appropriate agents are granted the authority and have the information needed to obtain benefits in the future, should that become necessary. If you or a family member would like to schedule a Long-Term Care Planning Consult, please contact our office at 989-356-6128.

If you have specific questions about your situation or would like to learn more, reach out to the team at WBH here.

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